I’m the Washington D.C. bureau chief for Forbes and have worked in the bureau for more than two decades. I've spent much of that time reporting about taxes -- tax policy, tax planning, tax shelters and tax evasion. These days, I also edit the personal finance coverage in Forbes magazine and coordinate outside tax, retirement and personal finance contributors to Forbes.com. You can email me at jnovack@forbes.com and follow me on Twitter @janetnovack.

Happy Cyber Monday; Supreme Court Won't Hear Amazon Sales Tax Appeal

Should sales tax be collected on that tablet or LED television you just bought online at a sweet Cyber Monday sales price? The answer, in many cases, isn’t clear and the U.S. Supreme Court isn’t about to resolve the confusion.

The high court declined today to hear appeals by Amazon.comAmazon.com and Overstock.comOverstock.com of a March decision by New York’s highest court upholding the constitutionality of that state’s first in the nation “Amazon law”—a 2008 statute requiring out-of-state Internet sellers with web marketing affiliates in New York to collect New York sales taxes on deliveries to New York residents.

A dozen other states have copied the New York law, but in October, the Illinois Supreme Court shot down that state’s 2011 Amazon copycat statute. Some lawyers had hoped that the apparent split between state courts would persuade the U.S. Supreme Court to take the case. As is customary, the Supreme Court issued no explanation today of why it declined to hear (“grant cert” to) the Amazon and Overstock appeals .

In 1992, when SCOTUS last weighed in on the issue of whether remote sellers must collect a state’s sales tax, Amazon (let alone drone delivery by Amazon) wasn’t even a glint in Jeff Bezos’ eye. In fact, the 1992 decision, Quill v. North Dakota, involved an old fashioned catalog merchant. The Supreme Court ruled then that under the Constitution’s commerce clause only merchants with a physical presence in a state (nexus, in tax-speak) can be required by that state to collect its sales taxes. The high court pointed out back then, however, that Congress could grant collection powers to the states—a clear invitation for Congress to get involved.

As Web retail sales exploded, states lost sales taxes and Main Street merchants squealed about unfair competition. But Congress failed to act. So finally, in 2008, New York’s fed-up legislature decided the use of New York based marketing affiliates — Internet sites which sponsor links to Web retailers and get paid when those links produce sales—would constitute sufficient physical nexus. Since then, a dozen states have copied New York’s Amazon law, also known as a “click-through nexus” law.

House Republican leaders have said they will fashion their own compromise, rather than consider the Senate passed bill. But so far nothing concrete has happened in that chamber, where any bill would face stiff opposition from anti-tax forces. Rachelle Bernstein, Vice President and National Tax Counsel for the National Retail Federation, said Monday that the Supreme Court’s refusal to take the case means “there is that much more need for Congress to write federal legislation to provide clarity and simplicity in this area.” She added that she is hopeful Congress “can pull this together in 2014. There certainly is the need.”

Currently, residents of the 45 states with sales taxes are supposed to send their home state the applicable sales tax (or “use tax” as it’s technically called when levied on out-of-state purchases) if they buy a normally taxable item from a web site or catalog merchant that does not collect the tax. But almost no one voluntarily pays up and states have focused mostly on how they can make Internet retailers collect for them. At one point, Texas was demanding $269 million in back taxes from Amazon, which later reached a deal with the state to collect its tax.

“As things currently stand, we have a patchwork of out-of-date and inconsistent cases, laws and regulations across the country which is extraordinary frustrating to consumers and retailers alike,’’ said Chicago lawyer David Blum, who represents both Internet and traditional bricks and mortar retailers. He noted that the confusion places sellers “in the cross-hairs of potential tax assessments.” He added that he was surprised the Supreme Court didn’t grant Cert. ”It is really unfortunate. A lot has changed in the past 20 years and we need the U.S. Supreme Court to essentially update its decision in Quill to reflect the contours of a more modern economy,” he added.

New York Attorney General Eric Schneiderman argued in a brief that the U.S. Supreme Court shouldn’t hear the Amazon and Overstock appeals, in part because the issue wasn’t yet ripe and there was no genuine conflict between state courts. Indeed, in its decision striking down Illinois’ Amazon law, that state’s high court didn’t actually reach the issue of whether the law was constitutional—the question decided in the New York case. Instead, in their 6 to 1 decision, the Illinois justices found the Amazon tax was preempted by a fairly recent law—the Internet Tax Freedom Act of 2000 (ITFA)-which prohibits states from imposing “discriminatory taxes on electronic commerce.” Ironically, the ITFA expires on Nov. 1, 2014, meaning Illinois’ “preempted” Amazon law could spring back to life then.

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That should be the headline, and it will be NY loss when Amazon drops the affiliate program now that the court case is a done deal. NY will not only lose in Sales Tax revenue, but income tax revenue as well from blogger/websites that either go out of business or move to a more tax friendly State.

If a small business lists its products and services on a New York-based website, that small business will be responsible for collecting and remitting New York sales taxes on any sales made through that website. Essentially, the small business would be subject to all sales tax collection and reporting requirements – it would be as if that business had an office or retail outlet in New York State.

We believe that some small Internet businesses will simply cut ties with New York websites to avoid this new compliance burden. For small businesses, the additional cost of collecting, reporting and remitting tax to multiple states in which they are not present is a real issue. We believe this poses an unreasonable burden on small businesses and will cause many small businesses to withdraw from interstate commerce. – See more at: http://techvoice.org/blog/view/13-12-03/Supreme_Court_Allows_New_York_Amazon_Tax_Decision_to_Stand.aspx#sthash.1nEvXqGR.dpuf

> If a small business lists its products and services on a New York-based website, that small business will be responsible for collecting and remitting New York sales taxes on any sales made through that website.

However, in the case of affiliate sales, the transaction is not carried out on the NY based website.

As a taxpayer who tries to follow the law, I would prefer that all online retailers be required to collect sales tax.

My state requires taxpayers to pay a use tax on items purchased on the internet. The tax can be computed either on actual purchases or as a percentage of income. Determining the tax based on actual purchases for my family of four, all of whom are adults and shop online, is time-consuming, so we usually use a percentage of income, even though we are in the top tax bracket. As a result, if some online retailers collect tax and others don’t, our use tax will be higher than necessary if we pay based on a percentage of income.

The only way to avoid overpaying is for me to examine all our purchases by my family for the year, subtracting those that already had sales taxes collected and those items that we returned, and computing tax on the rest. I see that as an unnecessary burden.